[Click eStock] "Lotte Chilsung, Operating Rate Expected to Continue Rising... Target Price Up"

[Asia Economy Reporter Song Hwajeong] Yuanta Securities on the 29th raised the target price of Lotte Chilsung from 200,000 KRW to 220,000 KRW, expecting the operating rate to continue rising. The investment opinion was maintained as 'Buy.'

Lotte Chilsung recorded earnings for the third quarter that exceeded market expectations (consensus). On a consolidated basis, third-quarter sales increased by 8% year-on-year to 698.8 billion KRW, and operating profit rose by 46% to 85.4 billion KRW, surpassing the consensus by 16%. Researcher Park Eunjeong of Yuanta Securities analyzed, "Although there were profit burden factors such as the escalation of social distancing levels and raw material cost pressures, profitability improvements exceeding the consensus appeared due to rising operating rates, mix improvement, and cost efficiency."

The beverage division recorded sales of 483 billion KRW and operating profit of 68.5 billion KRW, representing increases of 8% and 25% respectively compared to the same period last year. Researcher Park explained, "Sales of carbonated and sports drinks showed double-digit growth, driving both revenue and profit. Despite the impact of rising raw material prices, operating profit margin rose by 1.9 percentage points to 14% due to increased operating rates, higher contribution from carbonated drinks, and discontinuation of low-margin products." The liquor division posted sales of 173 billion KRW, up 1%, and operating profit of 11.8 billion KRW, an increase of 1080%. Although sales were sluggish in the entertainment market due to the third-quarter social distancing level escalation, margin improvement was remarkable due to the integration and unification of soju factories.

Yuanta Securities forecasts Lotte Chilsung's fourth-quarter sales at 550 billion KRW and operating profit at 18.6 billion KRW, representing increases of 8% and 461% year-on-year, respectively. Researcher Park said, "We assumed 8% growth for both beverages and liquor, as the rising operating rate trend, mix improvement, and efficiency effects are expected to continue similarly to the third quarter." She added, "In the phased return to normal life (With Corona) next year, the beverage division will maintain its channel sales strength advantage, and the liquor division will see continued operating rate increases due to the recovery of pent-up demand in the entertainment market."